Economists are chiding the notion that the UK and US will be able to agree to a trade agreement “very, very quickly”, despite the US Administration’s optimism. It’s hard to disagree with them. Even though some preparatory work can be done to speed things up once Britain is legally permitted to enter into its own treaties, there are a number of considerable stumbling blocks:

  • The UK has a trade surplus with the United States, sure to draw the attention of the US given President Trump’s focus on bilateral deficits
  • The UK must figure out just what kind of trade relationship it needs with the United States, which will be difficult if it is unable to secure a clear picture of what it’s trade relationship with Europe will be. After all, the UK’s trade with the EU is roughly equal to that of its trade with the USA and China combined.
  • Conversely, the US won’t fully know what to negotiate with the UK until it knows just what kind of relationship it has with the EU.
  • Even when it comes to a firm ally like the UK, I’m not sure what the appetite will be for a Free Trade Agreement in Congress. Moreover, reports are mounting that the UK’s bargaining position will be weak, and that the US could try take advantage in ways that spark a backlash from an otherwise desperate United Kingdom.
  • If May departs, and another election is called where Labour wins, it’s hard to imagine a seamless Trump-Corbyn trade negotiation. This scenario is not as far fetched as it may seem since a formal agreement would have to wait until 2019 to enter into force.

But I don’t think—as many commentators surmise—that the stumbling block to a treaty would be over financial regulation. The United States applies its rules in a non-discriminatory manner, and foreign financial institutions are largely subject to the same prudential and supervisory rules that are applied to US institutions. Some greater scrutiny could conceivably be given to inter-agency mutual recognition accords, but given the deregulatory focus in Washington, it is hard to believe the Trump Administration would apply a dramatically tougher standard that could justify raising standards not only abroad, but at home as well.

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